U.S. Crackdown Arrests Duo Operating Covert GPU Pipeline Supplying China’s AI Factories

Federal Authorities Disrupt High-Tech Smuggling Operation

In a significant crackdown on illegal activity, federal agents in Los Angeles have dismantled a sophisticated smuggling network responsible for exporting advanced graphics processors valued in the tens of millions to China, bypassing strict export regulations. Two individuals in their twenties, believed to have orchestrated this operation from a modest office in El Monte, were taken into custody.

Formation of ALX Solutions Inc.

According to recently unsealed court documents, ALX Solutions Inc.emerged shortly after new chip export restrictions were implemented by the U. S.government in late 2022. Over the following twenty months, the company executed 21 shipments, often routing goods through Singapore or Malaysia. The items were deceptively declared as commodity video cards, exempt from licensing requirements. A routine customs inspection, however, unveiled the truth, revealing cargo that included some of the most sought-after graphics accelerators, merely labeled as “computer parts.”

Financial Transactions and Communications

Investigators uncovered a trail of bank transactions, revealing a Hong Kong buyer who provided a $1 million upfront payment, alongside smaller sums from Mainland Chinese firms associated with defense contractors. Additionally, intercepted Signal communications indicated that co-founder Chuan Geng advised partner Shiwei Yang to fragment orders, switch shipping labels, and avoid using the same freight forwarder to evade detection.

Export Controls and Legal Framework

The case relies heavily on a regulation from the Bureau of Industry and Security (BIS) enacted in October 2022, which restricted China’s access to chips capable of managing extensive neural network tasks unless a Commerce license was acquired. According to BIS officials, the specific threshold for chip performance—approximately 600 gigabits per second of interconnect bandwidth—corresponds closely to hardware capable of enhancing military-driven artificial intelligence.

Unveiling the Operation

In a narrative reminiscent of a suspenseful spy thriller, the investigation led to the discovery of mislabelled pallets caught by customs in Long Beach last December. Tracking serial numbers revealed connections to Nvidia’s channel partner database, culminating in a late-night surveillance operation that followed a delivery vehicle from the port to ALX’s warehouse. When agents executed a search warrant, they found discarded anti-static trays for nearly a thousand premium GPUs, collectively valued at over $25 million, along with shipping documents for a nascent artificial intelligence company in Shenzhen.

Arrests and Legal Consequences

Chuan Geng, a legal resident of the United States, voluntarily surrendered to authorities without resistance. Shiwei Yang was apprehended at Los Angeles International Airport with a one-way ticket to Taipei, following the expiration of his student visa in 2020. Geng was released on a $250, 000 bond by a magistrate, while Yang remains in custody, with a detention hearing scheduled for August 12. Both face serious charges under the Export Control Reform Act, which could result in up to 20 years in prison.

Future of the Case

The prosecution is a collaborative effort involving the Justice Department’s Counterintelligence and Export Control Section and the U. S.Attorney’s Office in Los Angeles. The FBI has characterized the smuggling operation as a “classic transshipment with 21st-century polish, ”and BIS plans to pursue civil penalties and potential lifelong export bans against the defendants. In public filings, it’s been revealed that Geng served as the finance chief of a dissolved e-commerce company, while Yang co-owned a parcel-forwarding service catering to sneaker-flipping operations in Los Angeles. This lack of a robust tech background supports the prosecution’s assertion that ALX was solely established to facilitate the illicit flow of embargoed technology to China’s burgeoning market for accelerated computing.

Indictment Process and Trial Expectations

The legal proceedings are still in their early stages, with a grand jury yet to issue an indictment against the accused. Defense attorneys have hinted at a strategy to argue that the chips in question fell just below the Commerce Department’s performance thresholds when acquired. Expect substantial expert testimony regarding bandwidth capacities and firmware specifications during the trial, which could potentially take place as early as spring 2026, offering crucial insights into how the federal government plans to address technology smuggling in the era of artificial intelligence.

News Source: Justice Department

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